Cut up those credit cards?

One of my goals for this year, that I have partly accomplished, is raising my credit score. I need to get my score above 740, at minimum, so that when I apply for a mortgage loan, I’ll be able to get the best rate. I still need to raise my score about 40 points (this is an average as all 3 credit bureaus are reporting slightly different scores). One thing I’ve learned about improving my credit score, is keeping my debt to credit ratio low. Since I’ve paid off all of my credit cards, I’m looking pretty good here. However, another factor that affects a credit score is how much total credit banks are willing to loan you. Since I’ve been on a mission to improve my poor credit history, I haven’t had much credit extended to me these past few years leaving me with very low credit limits.

So, here is my dilemma: I have two credit cards with low credit limits that are charging me monthly fees and/or annual fees (totaling approx. $155 for the year) . I don’t use these cards at all anymore. However, there is a catch with these two cards: they were originally a way to pay off old collection debt. These cards were offered to me about 6 years ago to pay off two other credit cards that had gone into collections. Once I paid the old debt off in full, they extended a limited amount of credit to me. I’m now thinking of canceling these two credit cards now that they are paid in full, but then my overall total available credit limit will be reduced by almost $1,000. How will this affect my credit score? Will it ding my score by a few points? Since I’m hoping to apply for a mortgage loan with in the next year or so, I’m trying very hard to keep the activity on my credit report to a minimum.

After doing some research, canceling my two credit cards would probably affect my credit score a little bit. By how much, I don’t know exactly. I have two options; A.) I cancel these cards and save $155 annually, with the potential of losing a few points off my credit score, or B.) I keep these cards until I am able to purchase a home.  That could be up to 18 – 24 months meaning I would have to spend up to $310 on fees, but I’d be saving my credit score.

For now, I think I will keep the cards. If purchasing a house becomes ever more elusive and my time frame extends to more than 24 months, I might just go ahead and cancel these two cards. I do know that when I obtain that mortgage loan, these two cards are getting the ax!

What do you think? Would canceling these cards now be beneficial? Am I making the right choice by keeping these cards a little longer?

I'm burning my candle at both ends this week.

I’m posting this mid-week because 1.) I didn’t post any round-ups this past weekend, and 2.) I’m really behind on some projects…crap!  Some terrific articles have been written on various Yakezie member sites that I’d like to share, instead of banging out an article of my own. Enjoy!

• Sweating the Big Stuff and How to Raise Your Credit Limit (This also touches upon hard inquiries and soft inquiries)
• Young and Thrify and What’s Your Latte Factor? Of course I had to read this one! I love my Starbucks. However, it does make me think about spending my $2.50 daily. It sure adds up!
• Ultimate Money Blog is running a whole series on state economies. I love statistics! This one is about Alaska. So who wants to live near Sarah Palin?
• Rainy Day Saver changed the look of her blog too. I like it! Check it out. (P.S. I’m still working on mine )
• My Money Minute and Wine on a Budget. I personally am more of a beer drinker, but who doesn’t love wine? Okay, me. But most people like it.
• Monevator plays devil’s advocate on Wasting Money on Memories. Yet, the conclusion is well done.

Since I’m burning the candle at both ends this week (to use a figure of speech), I will make a point to post something meaty in the next day or so. Please hang in there,  I’m just juggling too many jobs right now. (That’s a good thing, though. Right?  )

Ventura County at dusk

I love exploring city statistics, comparing them with the city I live in, and making comparisons to cities I contemplate moving to. One site I always go back to is BestPlaces.net. I can quickly use their city compare link and glance through their copious amounts of data. (The one draw back to using this site is much of their data is a few years old. I’m hoping that when the 2010 census is published, they will update their statistics.) Another feature I find helpful is personal quotes and opinions about cities that people leave on their site. This helps narrow down the positives and negatives of an unknown city.

I use this site when considering my options for moving. For instance, I’m currently thinking of moving to a neighboring county, Ventura. It’s only a 30 minute drive away from where I live in Los Angeles County. But their population is 1/10 the size. According to Google, Los Angeles County is busting at the seams at almost 10,000,000 people – Whoa! Ventura County’s population, just to the north west, is under a cool million.  Ventura County is almost half the size, but even factoring this in, the population density is 1/6th of that of LA County (according to Wikipedia). What a difference! Less density means:

• Less traffic! A huge problem with LA county.
• Better, smoother roads due to fewer cars. I’m really tired of the pot holes chewing up my car.
• Less people! I love our city’s diversity, but I feel a little like a sardine lately. Too many people in such a small area.
• Better bicycle infrastructure. Ventura county is more bike-friendly with bike lanes painted on most of their roads.
• Less graffiti. Because we have so many people, there’s more chance of hoodlums messing up the city. Lately, many of them have been having a heyday with spray paint!

When comparing counties, I’m also looking for a little break in the cost of living. According to BestPlaces.net, I will be saving money on most of my expenses. Below is a graph directly from their website:

City Cost of Living Comparison

I’m not claiming Ventura County is cheap in any sense of the word. But it is cheaper than where I live.

Another factor to consider is their employment, or unemployment rate, and future expected growth. Los Angeles, and California in general, is pushing an unemployment rate of 13%. Ventura, however, is slightly lower than that. Since I will also have to search for a new teaching job, or something temporary for a while, this may bring me more prospects. You’ll also notice from this data below that most people in Ventura make more money than those in LA county, promising at least!

Cost of Living

Because this data is slightly outdated, I know that the sales tax has increased about 1%, but it has all over California. Ventura County’s sales tax is still 1% or more less than LA’s. Again, another reason for me to think seriously about moving.

On a side note, Ultimate Money Blog is doing something similar, but comparing all 50 states. I find this data fascinating. If any one is thinking of moving out of state, this might be a good window into what other states have to offer. If you use her descriptions along with BestPlaces.net city comparisons, you might find a city and state you would prefer to live in.

What city do you live in? Have you recently moved to a new city? What data did you use? Are you contemplating moving?

Our Honday Element "Ellie". It's what inspired up to go camping!

Today, my husband refinanced our Honda Element. I wasn’t too thrilled about the idea at first, because it meant having car payments for a longer period of time. But after doing the math, we realized we would be saving money.  Over all it means we will be paying a few months longer, but will be saving over $2,400!

Here is how it played out, you can be the judge and decide if it was a good move or not (I love feedback!)

• Our current auto loan APR was 9.98%. Not great, but when my husband first financed the vehicle, his credit was in the low 600’s, not very good.
• Our current auto payments with the 9.98% loan was $475 a month. We’ve owned the car almost 4 years, so this was a high payment for the length of time we’ve owned the car, and we still had 22 months to go. We owed $9,500 on the car.
• The new refinanced loan is now 7.25%, this is more than 2 percentage points less. Better credit score equals better APR.
• Our new payment will be only $319 for 33 months. This is the stinker part of the refinanced loan, the length of time. This adds almost a whole year onto the new loan. However, there isn’t a penalty for paying it off early. We can also save another half a percent on the loan if we set up auto-debits and we will definitely be doing this!
• I calculated my monthly savings: $156 saved per month. This equates to a savings of $3,432 over 22 months (the original length of the first loan). Since I’ll be paying about $1,000 more in interest, because the loan was extended, I deducted the $1,000 off the saved monthly amount. This leaves me with a total savings of $2,432.

Overall, I think this was a good move. I don’t like that we will be paying for the car longer. However, because there is no early payoff penalty, I might still be able to pay the car off in two years. If I don’t pay it off early, at least I know I’ll be able to stick the savings of $156 a month into savings. With a meager savings rate of 1.14% in two years I should be able to save:   $3,786.21 based on Bank Rate’s simple savings calculator and compound interest. (This is if every dime of my savings get deposited into my savings account!)

What are your thoughts? Was this a good move? Should we have stuck it out with the higher payment and APR, but shorter time period?

This photo reminds me of the journey towards financial freedom; lots of steps that are sometimes elusive.

I’m realizing that my goal to purchase a house with in the next year is still many months away. I started out with a 3-step plan: pay down debt, raise my credit score, save for a down payment. My first two goals are going swimmingly; I’ve paid off close to $8,000 in debt and am working towards paying off my line of credit and my car loan. I used a debt repayment calculator and found that at the rate I’m going, I should have both paid off in under two years. That’s great news, if I can pay it off before then, even better. I’ve also raised my credit score by over 100 points in a year. All there is for me to do is keep making my student loan payments, use my credit cards lightly, then pay them off in full every month. If I keep this strategy up, I should see a 740 score this year.

However, I’m struggling with the 3rd step of my plan: save a down payment. These last few months my income has waned. As a a temporary employee with a school district that is running out of funds, I’m seeing this as a long-term pattern. My husband’s business is doing okay, but he is only bringing in enough income to equate to one salary plus a part-time employee (who is a programmer). This means I have to develop a new plan for bringing in more income.

My plan is still in the fuzzy- vague-I’m not sure what I’m going to do yet stages, but at least I have a direction:

• Option A: Be a marketing genius and bring in more work for my husband, which would create a job for me. This plan is more long-term and the results wouldn’t be immediate. However, if I am successful, it would be my ideal option.
• Option B: Take on a part-time position with a local company or the Census Bureau. This would bring in extra cash for a few months while I develop a more long-term strategy, still allowing me to take teaching gigs.
• Option C: Stick it out with the current school district and hope their budget improves. This is a risky scenario, I don’t want to wait until the bitter end only to find out I was right all along.
• Option D: Go get a permanent position and switch professions. I’ve been teaching for almost 9 years, I haven’t had to work in a corporate office or go on a job interview in a very long time. I like my summers off and my three weeks of winter break. This option scares me!

As I switch gears and begin moving towards option A, I realize I need to be really organized and manage my time wisely. I can easily fall into a pattern of sleeping too late, or wasting time running errands when I ‘work’ for my husband. To optimize my time, I’ll begin focusing on tasks using my task manager in Outlook. This should keep me in line.

Have you had to change jobs lately? How do you manage your time when you’re at home? Which option would you choose if you were in my position? Do you use a program to help organize your tasks?

Our coupons save us money!

One area of finances that I’m getting good at reducing is my grocery budget. I’ve been diligent about making sure I have a coupon for most of the items I purchase, use my club rewards card, and purchase items on sale. Utilizing all three strategies to reduce my bill, I’ve cut my grocery bill by 1/3. I’m not one for clipping coupons, so I’ve been using eBay to purchase really large dollar off coupons and my club card coupons I receive every 3 months. Here are a few coupons I’ve purchased online that were worth the small price I paid:

• $10 off Iams coupons: I purchase a bag of cat food every three weeks for my 3 lovable furr-balls. With a $10.00 off coupon and with the cat food on sale, I purchased 5 bags of cat food for $18.00. I don’t know where these eBay sellers find these coupons, but they are great!
• $3.00 off World’s Best Cat Litter: I’m sure you see a trend here, saving money on pet items! This litter is the best, it is corn-based and completely biodegradable. On sale for $6.99 plus my $3.00 off coupon, I bought 4 bags for $16.00!
• $1.00 off any two Gatorades: My husband’s favorite drink, on sale for .89 cents plus his $1.00 off coupon, he purchased 10 Gatorades for $3.90.

The remaining coupons I use are based on my quarterly grocery purchases from my local grocery store, Ralphs. Ralphs has a great rewards program, earn $1.00 reward for every 100 points (or $100.00 spent). I also earn 5 points for every reusable bag I bring, which usually equates to 25 points. In a three month period, I usually spend between $750 – $1,000 on groceries. So, when I receive my rewards coupon there is usually a $10.00 off coupon towards any purchase. It’s a great incentive to keep me shopping at Ralphs!

It’s a good feeling to walk out of the grocery store spending less than $14.00 for 25 items, and seeing a savings of $21.88 at the bottom of a receipt. Now if only I could apply this kind of savings to my utility bills, I’d be golden!

I use Quickbooks (QB) religiously; I enter all of my debits, credit card charges and payments, invoices, payments towards invoices, purchase orders from vendors, etc. I don’t even own a paper checkbook register any more, I ditched it years ago and only use my QB register. I also love the income and expense pie charts and bar graphs it creates based on my income and expense categories I’ve set up. It’s all color coded to easily reflect where my money if going.

However, I realized at the end of last year, that my charts and graphs weren’t quite accurate. They were counting income that I hadn’t yet received. For instance, if I had an outstanding invoice in the month of November that was paid the following month, it would reflect that income in November, not when we received it in December. I was much more interested in the cash we had actually received for the month, not the cash we were supposed to receive. This also got a little hairy last year when I had a client pay 3 months late on an invoice. My charts were showing the income received in July, but I really didn’t get that income until October! I knew that there was a way to tell QB to show the amount when we received it, I just couldn’t figure out how.

After some digging around in my QB program, I realized that I could change it in my Preference settings. Changing the reports and graphs to ‘Summary Reports Based on Cash’ instead of accrual now accurately reflects our income. Prior to changing this setting, my January report was showing that we had received over $7,000 worth of income. However, most of our invoices hadn’t been paid yet (and I’m still waiting on payment!). After changing my setting, my graph accurately reflects that we had received almost $5,000 in income (I’m short this month!) This correction will help me refine my budget and look for monthly payment trends, such as January is a slow month, but March and April are usually great months.

Here is a screen shot of how I changed my reporting status: (Edit – Preferences)

Quickbooks Preferences

Do you use Quicken or Quickbooks? Do you utilize their graphs and charts to help refine your budget? What are the pros and cons to choosing ‘cash’ versus ‘accrual’?

Just the other day, Get Rich Slowly wrote a terrific post about renting versus buying property. I’ve been meaning to write my own post about this, especially since purchasing property has been on my mind now for over a year. It is also one of my goals I hope to accomplish by the end of this year or the middle of next year. However, I’m still not ready to take the plunge for a few reasons:

• Down payment: I don’t have the down payment saved up. I’d like to have at least 10% saved, which would be about $30,000 on a $300,000 home. I am really far from this goal.
• House prices: Decent homes in good neighborhoods are still selling for around $300,000. We live in a suburb of Los Angeles, so our prices are a little inflated compared to the rest of the nation.
• Fluctuating income: My husband owns his own business and it’s currently a little slow (normal for January). I work as a substitute teacher so I’m not ever guaranteed work. This will also make it a little difficult to qualify for a traditional 30-year mortgage at a decent APR.
• Indecisiveness: Lately, there are a few things about LA that are really getting on my husband’s nerves. He’s been complaining about everything: from the traffic to the grocery store clientele, to our neighbors. I’m not so sure he’ll be happy in LA in a couple of years if the city doesn’t begin to offer better services, smoother roads, or less traffic! Also, there is little hope for me obtaining a teaching job within the next couple of years with the school district I work for. They are one of the largest districts, and can’t find the money to continue paying it’s teachers. I live smack-dab in the middle of that district.

This brings me to rethink our idea of purchasing property. I know that we will eventually be property owners, I just don’t know if it’s going to be as soon as I had hoped. I have been really struggling with this new train of thought. That is until I read J.D.’s post. Basically it boiled down to what it really means to own property and is it a good investment?

Deep down I know that owning property is a good thing. If by the time of retirement, the home we purchase is either paid off or is worth more than we purchased  it for, it could be used to help us retire or move. It could function as an added security later in life. However, if we move only 5 years after we purchased our property and the market hasn’t improved, we would be breaking even if we’re lucky. In that event, we would be better off renting.

I found a great, free calculator from Yahoo.com that puts renting and owning in perspective. (I tried the NY Times link on GRS, but you have to be a subscriber to use it). Here is what the calculator figured out based on my numbers:

Rent vs. Buy Calculator

You’ll notice that based on these figures, it would be better if I continued to rent. The only thing this really doesn’t calculate is the profit earned by selling the property. I’m not quite sure how that works, but I would think that if you purchased a property for $300,000 and decided to sell 20 years later, the property would be worth more than what you paid for it. This is in sharp contrast to renting for the same period of time, there’s no profit in that scenario at all.

Again, I do intend to be a property owner myself in the near future. At least now I don’t feel as rushed or guilty if I don’t own my own little house in the valley by mid-next year.

What are your thoughts? Does this calculator factor in everything? Or is it missing the resale value somehow?

This may seem like a strange topic..When to Give Advice, especially considering I just finished a credit eBook that gives advice on improving credit scores. However, because I have learned many things about how credit works along the way to my own financial freedom, I’ve been asked to give advice to a friend or two recently.

Just yesterday, an older woman who I’ve helped over the years, asked me what she should do about her credit card debt. Now granted, this particular case is unusual and interesting, so my answer wasn’t complete because there are so many variables affecting her life of debt. Some background on this woman to put things in perspective:  She is nearing 65 years of age and has accumulated $120,000 of credit card debt over the years. Her excuses for this behavior are plenty: her mom died (10 years ago), her husband left her (12 years ago), her dad died (4 years ago). Her excuses go on and on. Her income is generated from her family’s businesses and her ex-husband’s social security and residual income, it comes out to about $80,000 annually. On top of this income, she also has investment accounts that her parent’s left her. Basically, she hasn’t really had to earn much of her income over the past 25 years, it just sort of accumulated from relatives. Her grasp on finances has dwindled due to this and other factors.

She asked my advice about calling and asking a credit card company to increase her credit limit or reduce her APR. The reason being was that Chase reduced her credit limits on two of her cards. She has stellar payment history, but her credit to debt ratio is well over 30%. I explained this to her, as it was one of reasons listed on the Chase letter she had received. She didn’t understand why they were looking at her overall debt including all of her credit cards. Once I explained that they see her as a risk because she is using much more than her 30%, she sort of understood, but felt it was unfair. My advice to her was to call Chase and ask them to either reinstate her original credit limit or reduce her APR. My thought on this was that it doesn’t hurt to ask, the worst they can say is no. Obviously the better option is to reduce the APR.

She then asked if she should pay more towards that card, thinking it might act as an incentive to change their minds. My advice to her was that she needed to figure out what the goal was: Was she thinking she wanted to pay off the card quicker? Her answer was no. Was she thinking of paying a large portion of debt off this year due to some additional income coming her way? Her answer was she wasn’t sure. I then explained to her that if she receives this additional income she is expecting, she might want to put a large portion of it towards her debt. However, by the end of the conversation it was clear she just wanted to reinstate her original credit limit of the card.

After I hung up with her, my husband who had overheard the entire conversation chimed in that she really needs to speak to a financial consultant. She did that two years ago, but didn’t like their answers: 1) Pay off the entire debt and save up to $20,000 a year on finance charges, or 2) file for bankruptcy. But I realized what the underlying problem is that’s causing her to be indecisive: She doesn’t realize that by paying off her debt, she will be saving the money she spends on finance charges.

There are some great calculators out there, like CreditKarma’s Debt Repayment calculator. I think my next strategy with her will be to show her how long it will take her to pay off her debt with the online calculator. Maybe then she’ll realize the sooner she pays it off, the better!

What are your thoughts? Obviously, this is an unusual scenario. She makes plenty of money, but just can’t seem to see the big picture. How would my credit eBook helped someone like this 25 years ago?

Okay, so I finished my credit eBook and am now looking for constructive criticism. My pamphlet is based on personal experience as well as sound advice that I have learned over the past few years. I’m trying to decide if I should offer my eBook for free, offer it for a nominal fee, or throw it in the recycle bin! All comments are welcome. Just remember that I am a sensitive human being.

P.S. I am temporarily hosting it on the adobe site for now. Once I receive feedback and figure out how I want to offer it, I will have a downloadable link from my site to my eBook.